On June 14, 2012, Michael Kinseley writes in the Los Angeles Times:
The current debate about rich and poor — the 1% vs. the 99% — is a bit misleading, because the evidence usually is data about income, not wealth. Looking at wealth would make the comparison even starker.
There are some nice deals to be had in the income tax code these days, but most wealth accumulates and passes from generation to generation with no tax at all. Warren Buffett (who has selflessly taken on the role of all-purpose tape measure in these matters) is worth $45 billion or so. Do you think that all of that $45 billion, or even most of it, has appeared on any Form 1040 on its way to the cookie jar? Even at the special, low 15% rate the U.S. insanely confers on capital gains?
Unlikely. Much of that $45 billion is unrealized capital gains — increases in the value of Buffett’s stocks that have never been cashed in, and therefore never taxed.
I’m not saying that unrealized capital gains should be taxed (although it’s a thought). I’m just noting that you only pay income tax when an investment is liquidated, and very wealthy people don’t have to liquidate until they actually need to spend the money.
For most of the very rich, this time is never. When you die, any unrealized capital gains disappear for income tax purposes. Your heirs, if and when they sell, pay capital gains taxes only on any increase in value since they got the money. There might be estate taxes, but only if the estate is worth $5.12 million or more.
The Federal Reserve released new numbers Monday. Unsurprisingly, wealth distribution is even more skewed than income distribution. In 2010, the median family had assets (including their house but subtracting their mortgage) of $77,300. The top 10% had almost $1.2 million, or more than 15 times as much.
But the headlines — and rightly so — went to the dismal fact that household wealth has been shrinking for all categories of Americans. In 2007, the net worth of the median family was $126,400. That’s a drop of almost 40% in just three years. (All these numbers have been adjusted for inflation.)
Characteristically taking the longer view, the New York Times led with the fact that household savings were back to where they had been in the early 1990s, “erasing almost two decades of accumulated prosperity.”
http://www.latimes.com/news/opinion/commentary/la-oe-kinsley-column-20120614,0,1109673.story
